Japan Inc. Faces New Disclosure Rules Amid Complaints

By Masumi Suga and Masatsugu Horie -
Jul 21, 2013

The Tokyo Stock Exchange is looking
to come up with new rules by the end of the year urging Japanese
companies to respond to rumors and speculation in a concrete
manner to address complaints from overseas investors.

The exchange has been told by investors, especially from
outside the country, that company statements filed to the bourse
in response to local media reports aren’t clear, Taisuke Maruo,
a senior manager at the TSE’s listing department, said in an
interview in Tokyo. The exchange is studying how responses can
benefit investors, he said.

The move is part of a push by the exchange, which last week
became the world’s third-biggest bourse by listed companies, to
boost investor confidence in the face of challenges from rivals
in faster-growing Asian economies. Investors outside Japan
account for almost 70 percent of trading by value on the Tokyo
bourse.

“This cleaning up, or attempt to improve governance, is
really the core part of Abenomics,” Jesper Koll, head of Japan
strategy at JPMorgan Chase & Co. in Tokyo, said in an interview,
referring to Prime Minister Shinzo Abe’s efforts to kickstart
Japan’s growth and modernize the economy. “What you are looking
for in terms of Japan is that it does away with its old insider,
cliquey-group thing and begins to operate in a free and fair way
-- so it actually becomes a democracy.”

Kawasaki Heavy U-Turn

The discussion over the way Japanese companies respond to
media reports or other forms of speculation has been reignited
by a u-turn in merger statements by Kawasaki Heavy Industries
Ltd. (7012), Japan’s second-biggest maker of heavy machinery. The
Financial System Council, which advises the Financial Services
Agency, in December compiled a report saying guidelines should
be considered to require companies to disclose information in a
clearer manner after a media report.

“In order to aim to be an international bourse, it’s not
appropriate to keep the current style of corporate disclosure,”
Etsuro Kuronuma, a professor at Waseda University’s law school
and a member of Japan’s Financial Systems Council, said in an
interview in Tokyo. “Companies should disclose whatever they
can when a scoop comes out.”

At issue is wording such as “nothing has been decided” or
“the report isn’t what we announced,” which are typically
found in statements filed to the Tokyo Stock Exchange by
Japanese companies after the reporting of market-moving news.

Such terminology may be interpreted by some to signal
confirmation of a report while others may take it as a denial,
according to the TSE’s Maruo. Overseas investors have told the
exchange they’re dissatisfied with the ambiguity of statements
of this kind, he said.

Investor Confusion

The responses are “like a dialect that can only be
comprehended by corporate communications departments and the
press,” Hisao Miyagawa, an associate professor at Osaka City
University who formerly worked at the investment banking
division of Nomura Securities Co., said in an interview. “The
expression and wording they use must be accurate and
understandable to everyone,” he said.

The Financial System Council, at a meeting on Nov. 27,
discussed a case where it said investors were potentially misled
after a company issued comments saying it wasn’t the source of a
report, only to later release a statement confirming the news,
according to a transcript of the council’s discussion posted on
its website.

Companies should respond to such a situation by disclosing
as much information as possible in a timely manner as long as
its interests aren’t hurt, Waseda University’s Kuronuma said.

Shareholder Interests

The interests of shareholders aren’t being considered
enough by company executives, Atsushi Saito, who heads Japan
Exchange Group Inc. (8697), a holding company formed on Jan. 4 through
the merger of the Tokyo and Osaka bourses, told reporters on
June 18.

In the case of Kawasaki Heavy, the Kobe-based company last
month fired its president as the company scrapped merger talks
with Mitsui Engineering & Shipbuilding Co. (7003) The executive,
Satoshi Hasegawa, two months earlier had denied the companies
were in discussions.

Kawasaki Heavy’s case has sent a message to the public that
the voices of investors and shareholders are important, Osaka
City University’s Miyagawa said.

The Tokyo Stock Exchange this week added 1,100 stocks from
the Osaka Securities Exchange as the two merged their cash-equity trading platforms.